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Another Release From Emergency Oil Reserve Would Carry Political Risks Another Release From Emergency Oil Reserve Would Carry Political Risks

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ENERGY

Another Release From Emergency Oil Reserve Would Carry Political Risks

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President Barack Obama walks past an oil rig during his visit to oil and gas production fields located on federal lands outside of Maljamar, N.M., Wednesday, March, 21, 2012.(AP Photo/Pablo Martinez Monsivais)

Speculation has run rampant since the spring that President Obama will tap the nation’s emergency oil stockpile for a second time during his presidency. The White House repeatedly has brushed aside the talk with a noncommittal statement that all options are “on the table,” a mantra that White House press secretary Jay Carney uttered again on Tuesday. This time, experts say, the odds that Obama will act are higher. But there are political dangers if he does.

The combination of economic necessity, renewed geopolitical concerns throughout the Middle East, and the political pressures associated with the upcoming election have some wondering whether these are more than just rumors this time around. If anything, the conditions have provided the Obama administration with a good case for tapping the Strategic Petroleum Reserve to try to tame surging oil prices. If so, Obama would be become the first president in history to tap the reserves twice.

 

“We know that last year a nonemergency release took place,” said Kevin Book, managing director of the energy-policy analysis firm ClearView Energy Partners. “Once there’s been one, there can always be another,” he said, noting that the administration has shown the “ideological willingness to draw the reserve.”

A research note from ClearView on Friday suggested “slightly better-than-even odds for a second draw" before Election Day, but the note cautioned that “with the election only two months away, Republicans might conceivably frame any nonemergency SPR sale as a politically motivated action.”

In the Republican-led House, that suggestion has already been floated. “It was never intended to be a short-term political tool, but that’s exactly what this president has turned to the Strategic Petroleum Reserve for,” Rep. Cory Gardner, R-Colo., said when he introduced legislation earlier this year that would tie any release to an increase in oil and gas leases on federal lands. The proposal sailed through the House in June, but it isn’t expected to gain any traction in the Senate.

 

Still, the message came through — Republicans will frame any additional release from the SPR as a political move to temporarily lower gas prices ahead of the election. And Republican presidential nominee Mitt Romney would likely use similar language if Obama were to tap the emergency stockpile again ahead of November.

The Obama administration first tapped the Strategic Petroleum Reserve last year, in coordination with the International Energy Agency, to offset the disruption in the oil supply caused by unrest in the Middle East.

It was only the third time that a United States president has tapped the emergency oil reserve to counter an oil-supply disruption since its creation in 1975. President Bush authorized an emergency release during the first Gulf War in 1991, and his son, as president, released 11 million barrels in 2005 after Hurricane Katrina to offset the shutdown of the petroleum industry in the Gulf.

In the coordinated release last July, the Obama administration authorized the sale of 30 million barrels of oil, as part a 60 billion-barrel total from IEA member countries “due to the protracted loss of 2 million barrels per day of light sweet crude from Libya,” according to the Energy Department.

 

The renewed unrest throughout the Middle East and North Africa in the past week, coupled with tightened Iran sanctions as well as other geopolitical and economic pressures, only makes the administration’s case for tapping the reserves again stronger, but such a decision would not come without criticism.

Some analysts have questioned the need for the 2011 move.

“Last year’s SPR release raised eyebrows among many energy experts, who were skeptical that supply conditions warranted the move,” said Blake Clayton, a fellow for energy and national security at the Council on Foreign Relations. “Another release now would likely meet similar skepticism, if not more intense, since it would be relatively close on the heels of the Libya release.”

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Clayton this month released a study looking at the lessons learned from last year’s release. He raised questions in the report about the effectiveness of the release.

“Policymakers should remember that releasing oil from strategic stocks is hardly a free lunch. Tapping emergency inventories may dampen prices in the short term, but can cause prices to rise soon thereafter,” Clayton said in his report, noting that a release can make market participants more skeptical that oil producers can satisfy global demand. “Thus, a release can make markets more anxious, not less, about future conditions in the oil market.”

Still, Clayton told National Journal that there’s “no question the White House is weighing the merits of a release closely” right now. The big question they’re considering, though, is “whether the perceived economic benefits of a release outweigh the potential political costs at home,” he said.

“It would be hard to make any sale not look political,” CelarView's Book added. And “with criticism almost certain ... they would want to have an explanation.”

This recent chatter isn’t the first time there has been speculation about the administration weighing another release ahead of the November election. In March, rumors circulated that Obama and British Prime Minister David Cameron discussed the possibility of a release to combat near-record fuel prices at the time. Then in May, reports surfaced that Obama would discuss a coordinated release with Group of Eight leaders during a summit at Camp David.

Though no action followed that speculation, the convergence of international and domestic pressures have created an environment today that would be more favorable for such a controversial decision. On top of the fragile geopolitical situation, oil prices reached a four-month high on Friday, a rise that was exacerbated by the Federal Reserve’s latest round of quantitative easing. While the Fed’s announcement that it would begin an open-ended round of bond-buying to drive down long-term interest rates and spur spending, the stimulus, along with other pressures, also drove fuel prices up. Prices have since fluctuated, but with a volatile market, they will continue to do so in the seven weeks left before the election. 

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